BP plc (ADR) (BP): The Company’s Recent Sale Shows Little Confidence in Renewable Energy

It wasn’t that long ago that BP plc (ADR) (NYSE:BP) was said to be ushering in a new kind of energy company. It was creating a diversified giant focused on both fossil fuels and renewables. Fast forward a couple years and now BP plc (ADR) (NYSE:BP) is completely exiting the renewable energy sector.

BP To Pay Massive Fine, More To Come

In a continuation of its recent asset sales, BP plc (ADR) (NYSE:BP) announced that it is putting its wind business on the auction block. The sale includes 16 operating wind farms with total capacity of about 2,600 megawatts. The company hopes the sale will generate $3.1 billion which it can use to reinvest in high-margin oil and gas projects. This sale comes on the heels of exiting its solar business in December 2011 and reverses what had been a creative plan to build a diversified energy company.

The shale oil boom in the U.S. along with a worldwide reduction in renewable subsidies has really clouded that industry’s future. Given limited visibility for wind beyond 2014, when current U.S. tax credits expire, it makes sense for the company to exit the business ahead of that time.

Despite those headwinds, the wind business had been growing briskly — last year, BP plc (ADR) (NYSE:BP)’s capacity grew 50%. The company feels that it is simply prudent to unlock the value of its wind assets now given that it could never build enough scale to really move the needle.

For the right owner, wind assets represent a solid path to investor returns. NextEra Energy, Inc. (NYSE:NEE), for example, just installed its 10,000th megawatt of wind-generating capacity. Its wind business has really been a driving force in propelling its shares higher in recent years.

That’s why it wouldn’t surprise me if NextEra Energy, Inc. (NYSE:NEE) or even Exelon Corporation (NYSE:EXC) emerge as the winning bidder for BP plc (ADR) (NYSE:BP)’s wind assets. Exelon Corporation (NYSE:EXC) is very reliant on nuclear power and recently cut its dividend because the company is not generating a high enough return to support it. The other factor behind the cut is that the company wanted to maintain its investment-grade credit rating so that it could participate in attractive opportunities. The BP assets certainly represent a compelling opportunity given size of the generating portfolio.

That being said, BP plc (ADR) (NYSE:BP)’s proposed sale of its wind assets shows that it has little confidence in renewable energy. The company can generate much higher returns from fossil fuels and it needs all the returns it can muster after forking over billions of dollars to pay for the Gulf of Mexico disaster. Given the company’s strategy to generate 50% more annual cash flow by 2014, it make sense to part with an asset that no longer had the potential to develop into a core business for the company.

The article BP’s Recent Sale Shows Little Confidence in Renewable Energy originally appeared on Fool.com.

Fool contributor Matt DiLallo is short Apr 2013 $35 puts on Exelon. The Motley Fool recommends Exelon.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!